Weekly Technical Analysis

Last Wednesday's price reaction to Obama victory has resulted in a sharp sell
off which has broken a significant technical support located at the 200 d
ma. On Friday despite an attempt to establish a short-term bottom bulls were
not able to reclaim the widely watched moving average.

It is obvious that bears have inflicted serious technical damage not only
price wise but above all breadth and momentum indicators are now firmly negative.

This weekend I will begin the technical update by analyzing Momentum & Breadth
Indicators:

Weekly Momentum:

RSI has broken the trend line support in force since the August 2011 low and
it has also breached the zero line.

Stochastic issued a sell signal on the third week of September and since it
lost the 80 line the fall has accelerated. There is no indication that could
prevent a move below the 20 line (Oversold zone).

MACD issued a sell signal at the end of October and it is still clearly pointing
down.

Once it breached the 500-support line at the end of October it has dropped
with intensity.

Here we have to watch the zero line and the RSI.

The RSI has entered the oversold zone. Usually when price establishes a bottom
we should see a positive divergence at least in the RSI so far there is none.

Conclusion = Positive (Only because it is oversold).

Weekly Stochastic of the Summation Index:

It is extremely oversold. Usually when it enters the oversold zone price begins
a bottoming process that culminates with a bullish signal cross. Probably
beforehand, the Summation index will have to drop below the zero line. A bullish
signal cross is expected to allow a multi-week/month rally.

Conclusion = Positive (Only because it is oversold).

NYSE 10 d ma Adv-Dec Volume:

Possibly one of the few breadth indicators left with a positive divergence.

So far declining volume remains muted and oddly well above the oversold zone.

Conclusion = Positive as long as the positive divergence is not aborted.

McClellan Oscillator:

It has erased the positive divergence and it is still above the -60 line (Oversold
zone).

Conclusion = Negative

Daily Momentum Indicators

RSI has erased the positive divergence.

Stochastic last Wednesday has issued a new sell signal and it is now back
in the oversold zone.

MACD is moving away from the zero line without any sign of slowing down.

Therefore the breadth and momentum "picture" remains bearish friendly so in
order to even think about a reversal pattern we have to wait for an improvement
of the technical indicators. Maybe the weekly stochastic will have to enter
the oversold zone in order to increase the odds of a reversal.

Neither sentiment is helping the bullish case since retail investors have
chosen the wrong time to become more aggressive. Keep in mind that this is
a contrarian indicator, which usually warns of a potential market bottoming
process when the Bull Ratio is at an extreme low reading.

Going forward I will closely monitor a simple risk on risk off indicator made
of the ratio SPX vs TLT (20+ year Bond etf).

The chart is self-explanative.

As you now I remain a firm believer that price has not established a major
top at the September 14 high therefore price has to find a bottom above the
June 4 low.

So the question is where SPX can attempt a reversal pattern?

Usually price establishes a bottom at a previous significant resistance transformed
into a support.

If we look at the monthly chart below we can see that on Friday price has
reached a significant one. If as I expect 1370 will not hold the next one
is in the area of 1325.

Since, if my long-term count is correct, price is now unfolding a wave (B)
or a wave (II) of a speculative Ending Diagonal (On October 28 I posted an
update of the long-term count), then price is still within the standard retracement
of both EWP.

As a matter of fact price will have to breach the June lows in order to kill
my scenario.

Lets move on to the EW interpretation of the current move.

In my opinion the internal structure can only be counted as corrective. Last
Thursday I modified the overall count from a Double Zig Zag to a Triple Zig
Zag (11 -wave move).

If on Friday price has established a short-term bottom (keep in mind that
price has reached a significant support = long term horizontal support + 0.5
retracement of the June-September up leg), in addition we have a daily Doji
candlestick and positive divergence of the NYSE Adv-Dec Volume:

Then within the TZZ pattern we could have two options:

1. Price is involved in unfolding the final wave (C) of (Z).

Since the down leg off the November 6 peak is only a 3 -wave move then this
option would require an Ending Diagonal.

A Wave (II) could reach the 0.618 retracement at 1410 (At 1408 we have the
10 dma)

If this count is correct then last Friday price could have established the
bottom of the wave (A). The wave (B) could top in the range 1396 - 1410, while
the following wave (C) down could reach the 1340 area.

Price with a TZZ is unfolding the wave (A) of the third Zig Zag, therefore
now price is tracing the wave (B); (Blue count)

Price with a speculative Ending Diagonal should complete the last wave
(C) of (Z), therefore now price is unfolding the wave (II); (Black count)

Since price has breached the 0.618 retracement of the June - September up
leg and it has ended the week below the 50 wma, the lower BB and the trend
line support in force since the March 09 lows are the last potential reversal
zones left above the June lows which is 5.4% below Friday's eod print.

Today I am adding a third EWP option that calls for a Triangle wave (B).

Despite the oversized selloff, the internal structure of the move off the
September 21 high to date, maintains a corrective 7-wave down leg hence the
odds that price has not established a major top are large.

There is something strange in the behavior of VIX. Despite the technical damage
inflicted to the major equity indices VIX has not established a higher high.
This positive divergence for the equity market could allow a larger bounce
next week.

Anyway as I mentioned last Friday:

"But the internal structure, despite yesterday's bearish Harami is still
suggesting that we have not seen yet the top. Hence as long as VIX does
not breach the pivot support at 17, I expect a move above the October 23
peak at 19.65 that should occur with a negative divergence of the RSI.

If VIX has more business to the upside we already know that SPX has more
business to the down side.

Usually when/if a daily VIX candlestick is above the upper Bollinger Band
we will have a serious warning that SPX (Proxy for equity indices) should
be establishing THE BOTTOM."

My goal is to establish the most likely path that the price of a particular
asset will undertake and profit through ETF instruments both on the long and
short side and mainly with leveraged ones (2 x & 3 x).

Therefore the main purpose of TWT will be to establish investment strategies
regardless if the market is in an up trend or in a down trend, leveraging
the chosen scenario while managing the risk by establishing protective stop
losses.

Hence I will always define the risk, I will try to let winners run the wave
and I will cut the losses if my strategy is wrong.

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